FMVA flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Weighted Average Cost of Capital

The blended after-tax cost of a company's debt and equity, weighted by their market-value proportions. It is the discount rate applied to unlevered free cash flow in an enterprise DCF.

Capital Asset Pricing Model

Estimates cost of equity as the risk-free rate plus beta multiplied by the equity risk premium. Beta measures how sensitive the stock's returns are to overall market returns.

DuPont Analysis

Decomposes return on equity into net profit margin, asset turnover, and the equity multiplier. It shows whether returns come from profitability, efficiency, or leverage.

Net Present Value Rule

A project should be accepted when the present value of its cash inflows, discounted at the cost of capital, exceeds the initial outlay. NPV is stated in currency units.

Circular Reference

A loop in which a formula depends on its own output. It occurs when interest on debt depends on cash flow that itself depends on interest expense.

Revolver as Model Plug

A revolving credit facility modeled to draw cash when the balance falls below a minimum and to repay when cash exceeds it, keeping the balance sheet balanced.

Corkscrew Schedule

A roll-forward that starts with a beginning balance, adds increases, subtracts decreases, and reports a closing balance. Used for PP&E, debt, and retained earnings.

Scenario Switch Cell

A single input cell, often read by CHOOSE or SWITCH, that lets one model display base, upside, or downside assumptions without maintaining separate workbook copies.

INDEX and MATCH

MATCH returns the position of a lookup value within a range, and INDEX returns the value at that position. The pair works leftward, unlike VLOOKUP.

XLOOKUP Function

A lookup function that searches an array and returns a corresponding value from another array, defaulting to exact match and supporting a built-in not-found result.

SUMIFS Function

Adds values in a sum range only where multiple criteria are met across paired criteria ranges. All referenced ranges must be identical in size.

What-If Data Table

An Excel tool that recalculates one formula across a grid of one or two changing input variables, displaying the outputs without editing the original formula.

Terminal Value

The value of all cash flows beyond the explicit forecast period, usually estimated with a growing perpetuity formula or an exit multiple applied to final-year EBITDA.

EV/EBITDA Multiple

Enterprise value divided by EBITDA. It is capital-structure neutral, allowing comparison of operating valuations across companies with different debt levels and tax positions.

Treasury Stock Method

Calculates diluted share count by assuming option exercise proceeds repurchase shares at the average market price, so only in-the-money options add net new shares.

Mid-Year Convention

Assumes cash flows arrive evenly throughout each year rather than at year-end, so period t is discounted using the exponent t minus 0.5.

Waterfall Chart

A chart that bridges a starting value to an ending value through a series of positive and negative contributors, drawn with floating bars for each step.

Data-Ink Ratio

The proportion of chart ink that actually encodes data. Raising it means removing gridlines, borders, shadows, and decoration that convey no information.

Football Field Chart

A horizontal bar chart displaying valuation ranges from several methods, such as DCF, trading comparables, and precedent transactions, so readers can compare them at a glance.

Zero-Based Value Axis

A rule requiring bar charts to start their value axis at zero, because truncating it exaggerates differences and misleads readers about relative magnitudes.

Flexible Budget

A budget restated at actual activity volume using standard per-unit rates, so resulting cost variances reflect efficiency rather than differences in volume.

Rolling Forecast

A forecast maintaining a constant horizon that is updated each period, dropping the expired period and adding a new one at the end.

Zero-Based Budgeting

A budgeting approach in which every cost must be justified from a zero base each cycle, rather than being rolled forward from the prior year's spend.

Variance Analysis

Comparison of actual results against budget, splitting the total gap into price or rate and volume or efficiency components to explain what caused the difference.

Accrual Basis

Accounting that records revenue when earned and expenses when incurred, regardless of cash timing. It underpins the income statement under both GAAP and IFRS.

Deferred Revenue

A liability recorded when cash is collected before the performance obligation is satisfied, later recognized as revenue as the obligation is fulfilled.

Goodwill

The excess of purchase consideration over the fair value of identifiable net assets acquired. It is not amortized but is tested at least annually for impairment.

Indirect Method Cash Flow

Derives operating cash flow by starting with net income, adding back non-cash charges such as depreciation, and adjusting for changes in non-cash working capital.

Porter Five Forces

A framework for industry attractiveness covering supplier power, buyer power, threat of new entrants, threat of substitutes, and competitive rivalry among existing firms.

Economic Profit

NOPAT minus the dollar cost of capital, calculated as invested capital multiplied by WACC. A positive spread signals that the business creates value above its required return.

BCG Growth-Share Matrix

A portfolio grid plotting business units by market growth and relative market share, producing four categories: stars, cash cows, question marks, and dogs.

Value Chain Analysis

Breaks a firm into primary and support activities performed to deliver a product, used to identify where cost or differentiation advantage is created.